CFA Society Singapore
SINGAPORE (Jan 11): UOB Kay Hian is reiterating its “hold” call on Mapletree Logistics Trust (MLT) with a higher target price of $1.39 from $1.36 previously and recommends an entry price of $1.26.
In a Friday report, analyst Jonathan Koh says, “We expect MLT to register positive rental reversion of 2-3% on a portfolio-wide basis for FY19 driven by Hong Kong, China and Vietnam.”
In Hong Kong, supply of logistics space is tight as there are no new warehouses coming on-stream, while logistic space is being redeveloped into commercial properties.
As at Sept 2018, MLT’s Hong Kong portfolio has a high occupancy of 98.6%. It also achieved positive rental reversion of 5% for FY18 and 3.3% for 1H19.
In addition, Hong Kong’s Chek Lap Kok Airport, the busiest airport in the world in terms of cargo traffic, also helps enhance Hong Kong’s status as a regional trading and logistics hub.
Meanwhile, China’s increasing domestic consumption and shift towards e-commerce, express delivery and third-party logistics are key drivers of demand for logistics space.
In June 2018, MLT has completed its acquisition of 11 logistics properties in tier-two cities, where domestic consumption is growing rapidly, for $205.3 million. It gained JD.com, Cainiao, Best Logistics, Sinotrans and China Post as tenants.
MLT has achieved positive rental reversion of 3% for FY18 and 2.5% for 1H19 for its China portfolio.
Demand for logistics space is just as strong in Vietnam due to the strong inflow of foreign direct investment (FDI) in manufacturing along with fast rising consumption. Inquiries for logistics space has also increased since the US-China trade conflict escalated.
“MLT should complete the acquisition of single-storey warehouses at Vietnam-Singapore Industrial Park 1 with a 10-year lease to Unilever for $43 million, providing initial NPI yield of 8.3%, in 4Q19,” says Koh.
In total, MLT has three logistics properties located in close proximity to Ho Chi Minh City and achieved positive rental reversion of 3% for FY18 and 4.4% for 1H19.
On the other hand, MLT’s management is cautious of the short-term outlook in Singapore due to the oversupply of logistic space. In 2017, 10.4 million sq ft of new warehouse space was added, representing a 10% increase in supply.
Rents have stabilised in 1H19 and the management hopes to see a recovery in 2H19.
As at 3.20pm, units in MLT are trading at $1.33 or 1.4% FY19 book with a DPU yield of 5.7%.